Thursday, September 04, 2008

Bearish Tone Pervasive In Early Trading

The economic reports were pretty good this morning, but the market has taken a decidedly bearish tone, and seems only focused on the negatives right now.

The ISM Services Index came in at 50.6 (vs. 49.5 consensus), which shows the services sector faring okay. Nonfarm productivity increased +4.3% (vs. +3.5% consensus), while unit labor costs fell -0.5%. So the inflation readings were also benign this morning.

But the weak showing of many retailers in today's retail sales reports, coupled with the news of a potential strike at Boeing, and the ongoing worries about the global economy are weighing heavily on everything this morning. Commodity and industrial stocks are down the most, followed by housing, brokers, and even technology.

The dollar is higher again this morning, putting additional pressure on commodities. Oil is lower, now below $109. The 10-year yield is also lower, touching nearly a 5-month low at 3.66%.

The VIX is up +5.5% to 22.60, which is still well below the 30 level reached in mid-July. The put/call ratio is at 0.91. Given the selling, I would have expected it to be above 1.0. This tells me investor complacency may have gotten too high. I have maintained my SPX hedges, but on a day like today I always wish I had more protection on.

long SDS


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